Demand is strong as U.S. launches new round of debt sales

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The World Bank’s gloomy economic forecast on Monday may have helped Uncle Sam sell some IOUs today.

With the stock market treading water after Monday’s sell-off, government securities again are attracting buyers.

The Treasury auctioned $40 billion of two-year notes and drew better-than-expected demand. The yield on notes was 1.15%, well below the 1.20% traders had predicted in a Bloomberg News survey.

Indirect bidders, an investor class that include foreign central banks, bought almost 69% of the notes, the biggest share in at least six years, according to Bloomberg data.

Still, the government had to shell out 0.21 of a point more than it paid on new two-year notes a month ago. When you’re borrowing $40 billion, that adds up. . . .

Shorter-term notes are almost always an easy sale for the U.S. The bigger tests of investor demand will be the sales of $37 billion in five-year notes on Wednesday and $27 billion in seven-year notes on Thursday, as the Treasury’s record borrowing binge continues. Bond investors will be looking for Federal Reserve policymakers to end their meeting on Wednesday with a statement stressing, once again, that they have no plans to raise short-term interest rates soon.

‘I think they’re going to reiterate that they’re on hold for quite some time,’ said Tom Di Galoma, head of U.S. rates trading at Guggenheim Capital Markets in New York.

The Fed also could try to give the Treasury an assist by announcing that it will increase its purchases of government securities. But that would pose more risk to the central bank’s credibility, given that its heavy purchases of Treasuries since February haven’t kept long-term interest rates from rising.

-- Tom Petruno